A Balance Transfer Credit Card, or a Personal Loan: Which is the Best for You?

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A Balance Transfer Credit Card, or a Personal Loan: What is Right for You?
There are two methods to consolidate credit: a cash-back credit card or a personal loan.


Last updated on Jan 31, 2023

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Credit cards for balance transfer and are two common consolidation strategies that could reduce amounts of interest you pay and allow you to pay off debt faster and more quickly and easily.
How do you decide between a balance transfer card or personal loan? Answer these questions to find out the best way to pay off your outstanding debts.
What is the best way to decide between a balance transfer card as well as a personal loan

When choosing between the credit card that allows balance transfer or a personal loan to consolidate debt there are four key questions you should consider.
1. What kind of debt do you have?
The kind of debt you're in may aid you in determining which loan is best suited for you.
For instance, it works by allowing you to transfer high-interest credit card debt onto your new credit card, but you can't transfer other debts.
A is more flexible. It can be used to pay off various types of unsecure debts, such as credit cards, medical bills, payday loans and existing personal loans.
2. How much debt do you have?
The amount of money that you have to pay -- as well as the time it takes to pay it offis an additional important factor to take into consideration.
A balance transfer card will likely have a lower credit limit than an loan, so it's best to use it for debts with lower amounts. A balance transfer card is available with an APR promotional of 0 percent for a specified time frame, typically between 15 and 21 months. You'll want to make sure you are able to pay off the debt within that initial period when you'll pay no charges for interest.
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An unsecured debt consolidating loan has a longer repayment period typically ranging between one and seven years. Many lenders provide high loan amounts, sometimes even up to $50,000. Though you won't save as much money on interest, a debt consolidation loan is usually an ideal choice for those with greater debts who require more time to pay it off.
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Nerdy Tip
If you're not sure the amount of debt you've got it is possible to input your current balances, interest rates, and the monthly installments to get a complete picture.


3. Which product can you qualify for?
Balance transfer cards and debt consolidation loans have different qualifications however both consider your credit score overall, therefore before you apply.
People with excellent to good credit (690 credit score or more) are likely to be eligible for both a balance transfer card and the debt consolidation loan. If you have bad or fair credit (689 credit score or less) then you might only be able to qualify for a loan. Consolidation loans are available to borrowers across the spectrum of credit.
>> COMPARE:
Depending on the lender, you might be able to pre-qualify for an loan, which means you can check potential loan terms without hurting the credit rating.
Are you looking to consolidate your debt? Find out if you qualify for an credit consolidation loan.
Simply answer a few questions and you'll receive personalized results by our lenders.


The amount of the loan
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4. What are the prices?
Also, consider the cost when consolidating the products. While balance transfer cards are offered with a promotional 0% APR period, many charge an additional fee for balance transfers that is usually between 3% and five percent of the total amount transferred.
Debt consolidation loans charge 6% to 36% APR, based on your credit score, , desired loan amount and repayment period. Some lenders will also charge an origination fee which will cover the cost of taking care of your loan. It is an upfront cost that ranges from one percent to 10 percent from the loan amount.
Be aware that, despite these costs the balance transfer loan or consolidation loan might offer a lower interest rate than your existing debts and you'll be able to save money.
Balance transfer vs. personal loan

Card for balance transfer



Personal loan



Type of debt


Best for paying off credit card debts only.



Best way to pay off credit card debts or other types of unsecured debt.



The amount of debt


Best for smaller debts that can be paid off within the promotional timeframe typically 15 to 21 months.



Ideal for debts with a greater amount which could take anywhere from one to seven years to pay off.



Criteria for qualification


Loans are available to borrowers with good to excellent credit (690 credit score or more).



The loan is available to borrowers across the spectrum of credit This includes those with fair or poor credit (689 score or lower).
The ability to pre-qualify with certain lenders.



Costs


Includes zero-interest promotional period.
May be charged 3% to 5% balance transfer fee.



Fixed monthly interest.
It is possible to charge 1% to 10% origination fee.









Consolidating your debt successfully

Consolidation can be a great way to get a handle over your credit card debt. But it won't address your spending habits that lead to getting the balance transfer card or debt consolidation loan.
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Establishing a can help you keep expenses in check. The budget should include debt repayments as well as money for things you want to buy.
It's even more crucial to avoid running up large amounts on credit cards that you've paid off. A debt consolidating loan as well as a balance transfer credit isn't beneficial if it winds up damaging your budget and pushing further into debt.


Author bio Jackie Veling covers personal loans for NerdWallet.







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